A Superstrategy for Generating Superlative Profits

The strategy of a super community bank is three-pronged: strong community orientation, customer-transparent cost savings, and a broad product line. This strategy is unique in that it provides defenses against large and small banks, builds value in the franchise, and generates strong profits.

Community Orientation

Local decision-making authority and strong ties to the community are critical to success. Hence, the presence of the local president and support of a board comprised of local community leaders are important components of the super community bank.

Although they represent a layer of overhead that could otherwise be eliminated, they also represent the bank's commitment to the community and to the service implications of that commitment. Reduced customer turnover and greater pricing flexibility represent the return on that investment.

Local presence also facilitates growth of local market share through the use of the president's and board's local contacts.

Customer Accessibility

Another major competitive advantage of community banks is the accessibility of senior management and other decision makers to customers of all sizes.

Small and large customers alike can speak with the department head and the president to gain access to the decision-making and transaction flexibility resident only at the senior management level.

The super community bank ensures that those characteristics do not get lost in the process of creating a larger holding company.

Much like the smaller community bank, the super community banking organization strives to retain employees at the local level and maintain continuity of customer contact.

The larger banks and regionals merge other institutions into their banks. They follow this transaction with major turnover and maximizing cost efficiencies.

Commitment to Continuity

But the super community bank is committed to keeping service continuity at each bank's level. Therefore, mergers into a super community bank are less painful to the smaller bank management, since most personnel are retained. This is particularly true for customer service personnel.

Another benefit to this continuity is enhancing the bank's ability to understand fully its customer needs and design its product line and delivery systems to meet those needs.

The super community bank normally does not centralize the decisions on customer pricing. The focus of each pricing decision is not the transaction itself, but the customer. The super community bank, therefore, remains close to the customer and maintains authority and control of the pricing decisions under the executives of each bank.

Pricing Flexibility

Although coordination is important - and sometimes essential, especially in the case of overlapping markets - the guiding philosophy is to leave the flexibility of the pricing structure, both deposits and loans, at the local level.

This approach takes full advantage of the community banking element of the super community bank, since it allows each bank's president and executive team to customize their pricing and transactions to individual customers and their market conditions.

Certain guidelines from the corporation may be imposed on each bank, particularly regarding liquidity levels, credit quality, asset quality, and fees.

The purpose of these guidelines is to ensure that each bank acts consistently with the corporate objectives towards maximizing asset quality and increasing profitability.

Relationship Orientation

By the same token, decisionmaking autonomy at the individual bank level is essential to retaining the customer service edge. This is key to the success of the super community bank and to maintaining the customer franchise.

The super community bank is always geared toward building a relationship versus a transaction orientation. It is interested in attracting and then retaining the customer.

Strong customer retention is followed by increasing cross-selling activities and declining acquisition costs. The bank is not interested in maximizing the fees of one transaction. Rather, its is a long-term approach to maximizing profits.

Consequently, the management of each institution spends an extensive amount of time catering to customers and prospects, marketing at the local community level, and building the relationships.

Flexibility in transaction structuring and pricing as well as quick turnaround time - which results from investing decisionmaking authority at the local level - come to play in building the relationship.

Focus on Service Quality

Service quality, a key element to achieving customer satisfaction and retention, is another major attribute to the super community strategy. It is the small bank service level that the super community bank is committed to offer, thus offsetting one of the important competitive advantages of small banks.

The individual members of the super community bank maintain close involvement in their own community. The board, chief executive, and senior management team of each member bank get involved in a wide range of community oriented activities. They strive to maintain civic leadership and participate actively in charity and other events, which demonstrate their commitment to the local community.

That commitment serves to defend their market position relative to both larger and smaller banks, while leveraging resources already available to the bank in each community.

Broad Product Line

As mentioned earlier, the concept of the super community bank is based on a three-pronged strategy. A broad product line is a cornerstone of the strategy. It is important to offer a wide array of products and services that will meet the customer's needs, so that customers will not outgrow the bank and customer retention will be achieved. This is one purpose of the franchise and a way to maximize its value.

The super community bank does not leverage the franchise at the expense of the customer service level. Rather, it strives to maximize revenues through the franchise by combining effective relationship building with a broad, sophisticated product line.

This combination provides the winning formula for defending the super community bank against the small bank's service, since smaller banks cannot offer the product breadth and sophistication that can only be supported by a larger asset base.

By the same token, that combination defends against the larger bank, which can offer the product sophistication but loses the personal service and relationship management aspect. The effectiveness of this element of the strategy hinges on the bank's ability to offer training so that the staff is both knowledgeable and sales-oriented.

The quality and salesmanship of the staff are essential to improve the leverage of existing resources, including distribution channels and customer bases.

Cost Savings

The super community bank does not aim to maximize the cost effectiveness of a large asset base. In other words, it does not attempt to minimize human resources costs and centralize all operations and decision-making activities to maximize savings.

Rather, it strives to reach a balance between cost efficiencies and relationship management.

This trade-off is typically achieved by centralizing functions that are transparent to the customer, ranging from accounting and investments to loan processing and other data-processing functions.

Processing activities offer significant scale savings. At the same time, they are transparent to the customer. Hence, the consolidation of back-office processing functions provides an effective tool available to the super community bank to take advantage of its size without sacrificing the community banking orientation.

Scale-Sensitive Technology

Technological investment is another scale-sensitive element to the strategy. Technological innovations represent high fixed cost. The greater the volume of assets over which the cost is spread, the greater the efficiency. In addition, technology can be used to improve customer service and sales effectiveness.

Platform systems and imaging are two prime examples of such applications.

Most super community banks have a clear vision of their strategy and the desired market position. That vision is shared throughout the ranks.

Employees and management alike understand the purpose of the bank, its philosophy, and culture. This commonality goes a long way to increase staff productivity and to motivate employees at all levels to go the extra mile and be their best.

Caring, responsive personnel is also conducive to creating a team approach whereby all resources are moving in the same direction. This, in turn, increases the effectiveness of resource utilization and promotes consistency across the individual bank.

Using the office network as a coordinated mechanism to generate low cost deposits and efficiently distribute products is another aspect of the leverage element of the strategy. Increasing "production" of deposits, interest income, and fees per square foot and per employee is an important measure of that leverage.

The super community bank attempts to combine the important characteristics of small community banks and large banks.

It takes the community banking approach to the customer from the small bank and combines it with some measure of cost efficiencies, which are created by economies of scale and the breadth of product offering from the large banks.

That combination is a winning strategy for the banking industry in the '90s.

Table : Decentralized Oversight

Separate president

In each subsidiary 90%

Separate charters for subsidiaries 88%

Separate boards of directors 85%

Responses by 125 holding companies in survey

Sources: American Banker/BDO Seidman

Table : Competitive Advantages Cited by Super Community Bankers

Personalized,quality service 44%Experienced staff 31%

Locations/convenience 21%Product diversification 19%

Community involvement 16%

Percentages add up to more than 100% because of multiple answers

Sources: American Banker/BDO Seidman

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